London fears over UK exit from EU

A British exit from the EU could prompt an exodus of leading foreign banks and undermine London’s dominance of the foreign exchange markets, the head of the City of London financial district said yesterday.

British prime minister David Cameron has promised to renegotiate the terms of Britain’s EU membership and hold an “in-out” referendum if re-elected in 2015, prompting fears that the world’s sixth largest economy could drop out of the club it joined in 1973.

The Lord Mayor of London, whose predecessors have spoken for the merchants of the City of London since 1189, told Reuters a possible British exit was a significant threat to London that would go against 2,000 years of trading history.

“There is a risk that those foreign exchange desks would move, and that might apply as much to JP Morgan or Citigroup as it does to Deutsche, and equally for all the expertise that is there for project finance, structured finance, commodity dealing and the legal side which is so strong here,” said Roger Gifford.

“If the UK was not in the European Union and there was some rift with Germany I cannot see why the German authorities would not be suggesting to the management of Deutsche Bank that they should have their primary operations particularly for foreign exchange back in Germany rather than London,” he added.

London trades more than a third of the $5-trillion a day global foreign exchange market and is by far the most important financial centre in the EU, vying with New York for the title of the world’s financial capital.

While the popular press has cast bankers as thevillains behind the financial crisis, the sector make up about a tenth of Britain’s gross domestic product.